Miller Shuts Down Freedom Financial

Exactly what the FBI was trying to find when agents raided the headquarters of Freedom Financial Services of Arkansas Inc. on March 14 is still a mystery, as is the number of other official investigations that may be under way regarding Nelson Miller's operation.

What is known is this: Freedom Financial is no longer taking loan applications, and Miller, sole owner of what was a $5.5 million mortgage brokerage, is going into the used-car business in Saline County.

Dee Fiser, owner of Fiser Truck and Tractor, confirmed that he leased Miller a 2-acre lot, a building and a billboard at 21833 Interstate 30 near Bryant. Miller paid two months' rent when he signed the one-year lease on April 15, Fiser said, and the lease includes extension options for two more years.

A week earlier, on April 8, Miller incorporated Arkansas Auto Sales Inc., according to the Arkansas Secretary of State's office. On April 22, the new company received a used-car dealer's license from the Arkansas State Police.

No phone number currently is listed for Arkansas Auto Sales, and Miller did not return a message left last week at the only Freedom Financial telephone number that is still working. Julie Justice, who answered the phone at the 301 N. Shackleford Road office in Little Rock, said the company — which last month was advertising two physical locations and 17 local phone numbers across the state — is trying to "wrap things up" and shut down.

Part of that process appears to be selling the company's Fort Smith office to Southern Mortgage Co. of Alexandria, La. Company President Royce C. McNeal Jr. could not be reached for comment, but his son and business partner, Brent McNeal, said Royce McNeal had purchased Freedom Financial's office at 4300 Rogers Ave. in Fort Smith, and it is now a subsidiary of Southern Mortgage.

Brent McNeal said his father had no connection with Freedom Financial before the April 23 purchase. At the Fort Smith office, which Miller opened in 1998, the phone is being answered with a similar name: Financial Freedom.

Southern Mortgage also owns Southern Mortgage Co. of Arkansas Inc., which entered the state in 1996. According to its registration renewal application filed with the Arkansas Securities Department on March 15, Southern Mortgage already has one office in Fort Smith as well as offices in Little Rock, Fayetteville, Russellville and Jonesboro.

The Arkansas subsidiary reported $2.22 million in revenue in 2001 and net earnings of $80,025. Expenses included $99,200 in management fees paid to McNeal-owned Southern Mortgage Company of Central Louisiana Inc.

In addition to Louisiana and Arkansas, the McNeal companies do business in Alabama, Kansas and Oklahoma, according to Brent McNeal.

At one time, Nelson Miller's mortgage operations also crossed several state lines. When he first applied for registration as a mortgage company in Arkansas in July 1996, he described himself as the founder of mortgage brokering businesses in three other states:

• Freedom Financial Services Inc. of Columbus, Ga., founded in April 1991. In 1996, he claimed about $12 million a year in first and second mortgage originations;

• Freedom Financial Services of Louisiana Inc. in New Orleans, founded in May 1992 and claiming about $9 million a year in mortgages. It was expanded in January 1995 with an office in Lake Charles, La., which he said handled about $8 million a year in mortgages.

• Freedom Financial Services Inc. of Gulfport, Miss., which was founded in December 1995. He claimed $8 million in mortgages in the first six months of operation and projected $12 million annually.

None of those operations survives. The Georgia company's incorporation was dissolved by the Georgia Secretary of State in July 1997. The last annual registration Miller filed in Georgia was in November 1995 and expired a year later.

Freedom Financial Services of Louisiana hasn't filed an annual report with state regulators since 1998 and has been listed by the Louisiana Secretary of State as "not in good standing" since 1999. A spokeswoman for the Secretary of State's corporate section said the company's charter "should be revoked pretty soon."

Mississippi dissolved the Gulfport company in November 1999. Miller apparently failed to pay franchise taxes in 1998 and failed to file an annual report in 1999.

In Arkansas

In Arkansas, however, Miller has faithfully filed copious information with mortgage company regulators at the Securities Department every spring since Freedom Financial was registered in 1996. He has, in fact, disclosed far more financial information than necessary to satisfy legal requirements. (See sidebar.)

On March 12, two days before the FBI seized his records, Miller filed his annual application for registration renewal. That it has not yet been approved is due only to a backlog of applications, said Securities Department attorney Mike Spades.

Spades said that department policy did not allow him to either confirm or deny that it is investigating Freedom Financial. The only complaint against the company that is public record was filed in January by South Arkansas Appraisal Group, which said Freedom Financial had not paid five appraisal fees dating from July to December 2001. That complaint was settled when Miller sent the department copies of checks issued to the appraisers on Feb. 15.

If the department has received other complaints against Freedom Financial, they are not public record because they have not been resolved, Spades said.

Legal Actions

His registration renewal application listed two pending legal actions against the company, as of March. The first was filed last year in Jefferson County Circuit Court by Amy Smith and alleges that Freedom Financial ordered the wrong type of homeowner's insurance.

The second is a class-action complaint filed in February in Clark County Circuit Court by a Freedom Financial client named Wanda Jones of Arkadelphia. She is represented by Todd Turner of Arkadelphia, who has filed several class-action suits against cash-advance businesses, and by Mark W. Nichols in Little Rock.

The Clark County suit, which has since been transferred to U.S. District Court, accuses Freedom Financial, Miller and several of his related companies of violating the state's 10 percent usury limit by making an 11.55 percent mortgage on Jones' residence. It also claims the $4,253 in closing costs that Jones was charged — including a 10 percent "origination fee" on the $28,000 loan — was "excessive, unfair and unconscionable."

A couple of days after Miller filed his registration renewal application, Turner and Nichols filed a very similar complaint in Garland County.

Another of Miller's companies, Absolute Abstract and Title Inc. of Little Rock, was the subject of a lawsuit filed March 20, six days after the FBI visited Freedom Financial.

In it, Stewart Title Guaranty Co. of Houston moved swiftly to disassociate itself from Absolute, to which Stewart had the forms necessary to issue title insurance for Stewart customers. A temporary restraining order was granted the same day.

Summary: After an FBI raid, Nelson Miller shuts down Freedom Financial Services Inc. and prepares to enter the used-car business.

State Files Reveal Nelson Miller's Ad Budget

The audited financial statement Nelson Miller included with his March 12 application for renewal of Freedom Financial Services of Arkansas Inc.'s registration as a mortgage company reported $5.52 million in net fee income during calendar 2001.

But the company's net profit was only $56,430 — barely a 1 percent return on revenue, despite the fact that Freedom Financial is a subchapter S corporation that pays no corporate income taxes.

He listed, however, an "officer salary" of $328,819. Since he is the sole owner and director, this was presumably the amount Miller paid himself. The rest of his payroll was listed at almost $2.7 million last year.

Observers of Miller's saturation marketing techniques may not be surprised to learn that he spent $945,330 on advertising in 2001 — 17 percent of revenue.

However, both Miller's personal salary and his advertising budget last year were significantly below their 2000 level. That year, he paid an "officer salary" of $478,000 and spent $1.31 million on advertising — almost 29 percent of Freedom Financial's 2000 revenue of just under $4.57 million. He may have cut those expense items because the company actually lost $131,585 for the year. (See table below.)

Miller's financial statements, on file with the Arkansas Securities Department, were audited and signed by a Baton Rouge, La., CPA named Eric J. Vicknair.

While he wasn't paying himself as much — at least not through Freedom Financial Services, he owns several affiliated companies that do not report to the state — Miller did trade up in residential real estate last year.

In June he bought a new $1.28 million home in Chenal Valley. The property was used to secure a $1.024 million mortgage from Regions Mortgage Inc. and a $225,000 second mortgage from Homeside Lending Inc. of Jacksonville, Fla.

Later in the year he sold for $550,000 the 4,356-SF home in Ridgefield Estates that he had purchased from William Dillard in June 1998.

Freedom Financial Services Inc. Financial Statements As of Dec. 31

Net Revenue or (Loss) — Profit on Hand — Cash Salary — Officer Salaries — Other Advertising (% of revenue)

2001 — $5,521,650 — $56,430 — $77,225 — $328,819 — $2,687,726 — $945,330 (17%)
2000 — $4,565,058 — ($131,585) — $10,018 — $478,000 — $1,872,982 — $1,311,941 (28.6%)
1999 — $3,077,285 — $150,697 — $180,345 — $244,850 — $1,046,167 — $917,800 (29.4%)

Source: Audited financial statements filed with the Arkansas Securities Department by Freedom Financial Services Inc.